Tax News & Views Risk v. Reward Roundup

September 20, 2021

Pelosi on Center Stage With Biden’s $4 Trillion Agenda at Risk – Billy House and Erik Wasson, Bloomberg ($). “The fate of President Joe Biden’s economic agenda rests largely on Speaker Nancy Pelosi navigating deep Democratic rifts and the minefield of promises she’s made to keep the party’s moderate and progressive wings moving toward her goal. The California Democrat, who has only three votes to spare on any party-line votes, has a jam-packed September agenda that includes action on a multi-trillion dollar tax and spending bill as well averting both a politically disastrous government shutdown and a potentially catastrophic Treasury default.”

Pelosi and her team are, for now, sticking to a commitment to emboldened centrists to hold a vote by Sept. 27 on the portion of Biden’s agenda already passed by the Senate that would deliver $550 billion in new infrastructure spending. That comes at the heavy price of breaking an earlier promise to progressives that she would hold up the public works bill until the Senate passes the larger package of as much at $3.5 trillion for social, climate and other programs…

It’s a complicated juggling act for Pelosi. The timing of the vote on the larger package puts moderates in swing states -- the same lawmakers she looked to reassure with the infrastructure vote -- in a precarious position.

Moderates Urge Pelosi to Stay the Course on Infrastructure Vote – John Harney and Erik Wasson, Bloomberg ($). “Democratic moderates in the U.S. House are imploring Speaker Nancy Pelosi to move forward with a Sept. 27 vote on a bipartisan infrastructure bill despite threats from progressives to block it if a much larger spending package has not also been approved. ‘We cannot afford to delay a single day longer when our nation’s infrastructure is crumbling, climate change induced calamities have just devastated communities across our country, and two million jobs a year are on the line,’ the nine lawmakers wrote in a letter to Pelosi on Friday."

With time running short, Pelosi faces a dilemma over the clashing priorities of Democrats and President Joe Biden’s desire to enact his ambitious agenda. She pledged to hold by Sept. 27 a vote on $550 billion in new infrastructure spending, which has already been approved by the Senate.

Earlier Friday, Representative Pramila Jayapal of Washington State, the leader of the Congressional Progressive Caucus, warned that the speaker ‘won’t have sufficient votes’ to pass the infrastructure measure without the $3.5 trillion tax and social spending package having first passed both the House and Senate.

House Budget won't act this week on reconciliation as Dems battle – Punchbowl News ($):

We have some news here: The House Budget Committee will not mark up the Democrats’ reconciliation package this week. This means that the $3.5 trillion reconciliation package won’t be ready for the House floor by next week. We never thought it was going to be, but this just makes it official.

What the House of Representatives is trying to accomplish can seem confusing. Perhaps an explanation using oversimplified bullet points can help:

  • There are two bills at play: An infrastructure bill that passed the Senate and a reconciliation that has yet to pass either chamber;
  • The reconciliation bill includes tax increases. The infrastructure bill does not;
  • House Democrats are split in their support for the bills: "Group A" supports the infrastructure bill and "Group B" supports the reconciliation bill;
  • Both factions have vowed to oppose the bill that they don't support unless the bill they do support has already passed the House;
  • House Speaker Nancy Pelosi (D-Calif) recently vowed that both bills would be voted on by September 27th, but she did not say which bill would be voted on first;
  • That plan has changed;
  • The reconciliation bill will not be ready for a House vote by September 27th.
  • Because of this, Pelosi has scheduled a House vote for the infrastructure bill on the 27th but not a vote for the reconciliation bill;
  • The timing change prompted Democrats in the "Group B" sector to say they will not support the infrastructure bill and that it will not pass the House – which might be true if all House Republicans also oppose the bill;
  • It is not clear if all House Republicans will oppose the bill – and if enough of them do support the legislation it could pass the House;
  • If (big “if”) the House passes the infrastructure bill, President Biden can sign it into law ASAP;
  • If the infrastructure bill gets signed into law, it becomes very unclear if the reconciliation bill will pass either chamber.

Meanwhile, in the Senate, taking a "strategic pause" on the reconciliation bill continues to be proffered:

Scoop - Manchin: Delay Biden plan to '22 – Hans Nichols, Axios. “Sen. Joe Manchin (D-W.Va.) is privately saying he thinks Congress should take a ‘strategic pause’ until 2022 before voting on President Biden’s $3.5 trillion social-spending package, people familiar with the matter tell Axios.”

Why it matters: Manchin’s new timeline — if he insists on it — would disrupt the plans by House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Chuck Schumer (D-N.Y.) to vote on the budget reconciliation package this month.

Driving the news: Back home in West Virginia last week, Manchin told a group of employees at a Procter & Gamble facility in Martinsburg he wanted to pause all the talk about the $3.5 trillion bill until 2022, Axios was told.


Biden Presses Congress to Add Missing Elements of His Tax Plan – Jonathan Curry, Tax Notes ($). “House Ways and Means Committee Democrats have signed off on their tax changes for the upcoming reconciliation bill, but President Biden wants to see some of his pet provisions reintroduced. ‘I know we still have a long way to go, but I’m confident that Congress will deliver to my desk both the bipartisan physical infrastructure plan and the Build Back Better plan that I have proposed,’ Biden said in a September 16 speech at the White House."

The House Ways and Means Committee advanced a package that includes $2.2 trillion in tax increases to help pay for the $3.5 trillion reconciliation bill that Democrats in Congress are assembling. That package contains many of the tax provisions sought by the Biden administration, as outlined in his American Jobs Plan and American Families Plan, but with some key provisions missing — at least for now.


SALT Break Would Erase Most of House’s Tax Hikes for Top 1% – Laura Davison, Bloomberg ($). “High-earning taxpayers would face much smaller tax hikes -- or even cuts -- if Democrats decide to restore the federal deduction for state and local taxes in legislation that’s now moving through the House. If the SALT deduction were fully reinstated, the top 1% of taxpayers -- those earning at least $401,601 -- would face a tax increase less than half as large as that if the current cap on the write-off were retained, according to data from the right-leaning Tax Foundation.”

New Jersey Dems Insist SALT Must Be in Reconciliation Bill – Doug Sword, Tax Notes. “A pair of New Jersey Democrats who won election in 2018 on their party’s pledge to restore the state and local tax deduction said they don’t believe the $3.5 trillion budget reconciliation bill can pass without that promise finally being kept.”

‘We cannot be for this reconciliation bill, despite all of the good things that it does, unless and until it restores the SALT deduction for our middle-class constituents,’ Rep. Tom Malinowski, D-N.J., said at a press conference in Bergen County, New Jersey, September 17.

Malinowski was joined by three other New Jersey Democrats: Reps. Mikie Sherrill and Josh Gottheimer and House Ways and Means Committee member Bill Pascrell Jr.

FWIW: Lawmakers regularly threaten to oppose a bill, but then don't follow through. The problem with the reconciliation bill is that there are dozens of Democratic lawmakers threatening to oppose its passage for multiple reasons. It only takes four of them to follow through on their threat and oppose the bill for it to fail. 


IRS Bank Reporting Pushback – Blomberg ($):

Associations representing banks, credit unions, and other businesses are reasserting their objections to a proposal that would require financial institutions to report customer account flows to the IRS.

The Biden administration, under a plan detailed in May, would necessitate reporting for all personal and business accounts with gross inflows and outflows of $600 or more.

The House Ways and Means Committee didn’t include the measure in the tax bill it advanced last week. But the panel’s chair, Richard Neal (D-Mass.), has said he’s still open to the idea and is talking to Treasury officials about possibly adding a bank reporting proposal that may include changes to the one previously offered by the administration.


W&M Bill ‘Strikes at the Heart’ of Estate Tax Planning – Jonathan Curry, Tax Notes ($). “The House Democrats’ plan to revamp the tax treatment of grantor trusts would effectively bring an end to a laundry list of the most widely used estate tax planning techniques, according to practitioners. The legislation advanced September 15 by the House Ways and Means Committee would make two fundamental changes to grantor trusts: imposing gift or estate tax once a grantor trust is terminated and treating sales between a grantor trust and its owner as taxable transactions.”

Combined, those two changes would transform estate tax planning and spell an end to the list of tax acronyms familiar to any estate planner: grantor retained annuity trusts (GRATs), spousal lifetime access trusts (SLATs), intentionally defective grantor trusts (IDGTs), irrevocable life insurance trusts (ILITs), qualified terminable interest property (QTIP trusts), and more.


IRS Gets Go-Ahead On Summons Probing $220M Easement – Theresa Schliep, Law360 ($). “The IRS can proceed with a summons seeking bank account information on a company that claimed a $220 million conservation easement deduction and is being audited by the agency, according to unsealed documents from a North Carolina federal court."

The Internal Revenue Service can go ahead with obtaining information from Equity Investment Associates LLC's bank as the agency audits a conservation easement transaction that resulted in a $220 million tax deduction for the company, a North Carolina federal court said in an order Aug. 16 made public Thursday. The agency's scrutiny of this transaction is appropriate considering the sizable tax deductions for the pass-through entity's members, and the requested bank account information is relevant to the audit, according to the order.


Alaska LuLaRoe Customer Wins Class Status in Sales Tax Lawsuit – Laura Mahoney, Bloomberg ($). “A consumer won class certification on behalf of more than 10,000 Alaska residents in a complaint alleging clothing retailer and multi-level marketing company LuLaRoe Inc. improperly charged sales tax on purchases where no tax was due.

Court Action:Alaska U.S. District Court Judge H. Russel Holland granted class status Thursday to plaintiff Katie Van, who alleges the company violated the Alaska Unfair Trade Practices and Consumer Protection Act. The class includes all people who paid tax on purchases of LuLaRoe products delivered to a location in Alaska that doesn’t assess sales tax on clothing.

The potential class size is 10,369, and members could each receive three times their actual damages or $500—which ever is greater.

Kentucky DOR Announces Increase in Individual Income Tax Standard Deduction for 2022 Tax Year – Bloomberg ($):

The Kentucky Department of Revenue Sept. 14 announced the annual adjustment of the individual income tax standard deduction for the 2022 tax year. After adjusting for inflation, the standard deduction increases to $2,770 from $2,690. The amount will be incorporated into 2022 tax forms. Taxpayers should use the amount for tax planning for the new year.

US Urges 8th Circ. To Toss Mo.'s Challenge To Tax Cut Limit – Maria Koklanaris, Law360 ($). “The Eighth Circuit should uphold without oral argument a lower court's ruling that Missouri is not injured by a coronavirus relief law barring the use of certain funds to pay for tax cuts, the U.S. Department of the Treasury said Friday.”

In a brief replying to Missouri's appeal to the Eighth Circuit, Treasury said that Missouri had overinterpreted the law, which disallows states from using coronavirus relief funds to offset reductions in tax revenue. Missouri has been contending that if the law denied states' ability to cut taxes at all, that would be unconstitutional, Treasury said. But, Treasury said, that is not what the law says, and the U.S. District Court for the Eastern District of Missouri agreed that Missouri's "hypothetical interpretation" does not comport with the statute.

Massachusetts Overhauls Sales Tax Filing Duties for 2022 – Michael Bologna, Bloomberg ($). Filing sales tax returns could get much more complicated in Massachusetts next year. Sellers will have to provide a lot more financial data to the state and they won’t have much time to prepare.”

The Massachusetts Department of Revenue issued a news bulletin Thursday stating it would demand additional information from in-state and remote sellers beginning in 2022 under the state’s initiative aimed at accelerated collections. The additional disclosures will apply to taxpayers with filing duties under the sales, meal, and room occupancy taxes.

Washington DOR Releases Green Transportation Sales Tax Refund Request Form – Bloomberg ($):

The Washington Department of Revenue (DOR) Sept. 1 released a form for sales and use tax refunds for green transportation. The form includes sections on: 1) purchaser information; 2) seller information; 3) refund type; 4) supporting documents; and 5) declarations. The DOR also provides information on how the information collected on this form is used and exemption amounts for new vehicles with different ranges of fair market values.


EU’s Gentiloni ‘Confident’ of Deal With Ireland on Global Tax – Morwenna Coniam, Bloomberg ($). “The EU’s Economy Commissioner is “confident” of finding a “shared way” with Ireland on a global minimum corporate taxation agreement and said it’s in the interest of the Irish economy to have a ‘stable and predictable’ global system without losing the possibility of competition on tax.

Ireland’s economic attractiveness for investment is 'not based on a small difference of corporate minimum tax rate,' Paolo Gentiloni told RTE’s Morning Ireland, noting other competitive features such as a good business environment, educated labor force and being English-speaking.

‘This is not a matter of reputation,’ he said and ‘all countries have their own right to take their own decision.’


A Spreadsheet to Compare GILTI Proposals With Current Law – Martin Sullivan, Tax Notes. “Democrats want to change the global intangible low-taxed income rules, but what they will agree to is hard to say. With so many moving parts to the GILTI calculation, the possibilities are endless. So far, President Biden’s proposal in the Treasury green book is the toughest. In second place is the proposal by Senate Finance Committee Chair Ron Wyden, D-Ore. And least onerous is the GILTI proposal in the mark of House Ways and Means Committee Chair Richard E. Neal, D-Mass. In fact, in some circumstances the Neal alternative can be more generous than current law.”

House Bill Raises Chance for Global Pact to Curb Corporate Tax Havens – Alan Rappeport, New York Times. “The prospect of the largest overhaul to the global tax system in a century took a step forward this week as top Democrats introduced a plan to rewrite tax rules for multinational companies in a way that would allow the United States to join the rest of the world in an effort to crack down on tax havens. Passing such legislation will be critical for the Biden administration, which is leading global negotiations aimed at limiting the ability of companies to minimize their tax bills by setting up offices in low-tax jurisdictions. The White House says this corporate strategy deprives economies of much-needed revenue."

Finance ministers from around the world have been working for months to complete a plan to end what they describe as a race to the bottom on corporate taxation before an October deadline. More than 130 countries have agreed to adopt a global minimum tax of at least 15 percent and are discussing a change in how taxing rights are allocated so that large businesses, including technology giants like Amazon and Facebook, pay taxes in countries where their goods or services are sold, even if they have no physical presence there.

House Democrats, as part of their plan to raise as much as $2.9 trillion to finance President Biden’s social safety net package, proposed raising the tax rate on companies’ overseas earnings to 16.6 percent from 10.5 percent and calculating the tax on a country-by-country basis. The plan would meet the primary commitments of the global agreement that is being negotiated through the Organization for Economic Cooperation and Development.

Int'l Biz Challenges Come Into View As Dems Advance Tax Plan – Dylan Moroses, Law360 ($). “President Joe Biden's administration and congressional Democrats have international tax policy differences to settle as they craft their multitrillion-dollar reconciliation bill, but the plan likely will create tax headaches for multinational corporations regardless of its final shape. House Democrats on the Ways and Means Committee approvedtheir tax package for the reconciliation bill this week, but key differences remain on how to overhaul the U.S. international tax system between their legislation, proposals in the U.S. Senate and policies floated by the Biden administration."

It remains unclear to what extent taxes will be increased on corporations and their foreign earnings, but tax policy observers told Law360 the House Democrats' plan proposessignificant tax hikes on foreign-sourced income.

Other components of the House plan may be revised in ways that could result in higher rates on U.S. multinationals, based on the differences in approach between the House, Senate and Biden administration, observers said.


How Accounting Giants Craft Favorable Tax Rules From Inside Government – Jesse Drucker and Danny Hakim, New York Times:

The largest U.S. accounting firms have perfected a remarkably effective behind-the-scenes system to promote their interests in Washington. Their tax lawyers take senior jobs at the Treasury Department, where they write policies that are frequently favorable to their former corporate clients, often with the expectation that they will soon return to their old employers. The firms welcome them back with loftier titles and higher pay, according to public records reviewed by The New York Times and interviews with current and former government and industry officials.

From their government posts, many of the industry veterans approved loopholes long exploited by their former firms, gave tax breaks to former clients and rolled back efforts to rein in tax shelters — with enormous impact.

Pro Tip: This is not the first article to report this information, and it's not just a tax industry thing. In fact, there is a nickname in Washington for it: The revolving door. People work on congressional committees or in agencies and then take a lobbying job. Also, lobbyists take jobs on congressional committees and within agencies. This happens in nearly every sector of nearly every industry.


Lunch plans made! It’s Pepperoni Pizza Day, which “recognizes the most popular pizza ever created,” according to National Day calendar. Fun fact on pizzas: “According to legend, Raffaele Esposito created the first pizza in June of 1889. The Queen of Italy, Margherita of Savoy, inspired the pizza maker so much, he created the pie-shaped delicacy. In the queen’s honor, he named it Pizza Margherita and topped the pizza with tomatoes, basil, and mozzarella. The colors represent the Italian flag,” states National Day.

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